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4 important points to consider in analyzing the digital currency market


Bitcoin price fluctuations are one of the most important features of the digital currency market that any newcomer should be aware of before investing or trading. Over the years, with the arrival of institutional investors, this market has reached relative maturity, as a result of which it has become more correlated with other financial markets. However, the digital currency market is still less valuable than other financial markets, making it a good breeding ground for whales.

This article examines the relationship between the price of Bitcoin and the price of gold, the dollar index, and the S&P 500 so that traders can get a broader view of the impact of these financial markets before buying and selling digital currencies. Finally, the dollar index is used as a parameter to predict when the pennies will start to grow.

The relationship between the price of bitcoin and gold

Gold and Bitcoin price correlations
Gold and Bitcoin price correlations

Gold is a safe haven for investors when demand for it increases when financial markets and geopolitical tensions are uncertain. A precious metal that has stood the test of time over the centuries and is now worth more than $ 8 trillion. Comparing the price chart of Bitcoin against the price of gold from 2011 onwards, the correlation between these two assets can be seen in several time periods, both in a downward and upward trend. Therefore, it can be expected that the positive trend of gold prices in the future will also help the growth of bitcoin prices.

Also in recent months and at daily and weekly intervals, the fall in gold prices has often affected the price of bitcoin and caused it to fall. For this reason, paying attention to the resistance levels of gold and considering the risk of its fall can help you in taking a buy or sell position on Bitcoin. Of course, it is important to note that at some point in time, bitcoin has continued to grow despite the downward trend in gold.

Bitcoin correlation with the US stock market

Bitcoin price correlation and S & P500 index
Bitcoin price correlation and S&P 500 index

Looking at the bitcoin price chart and the S&P 500 index, we can get some interesting information, including the sharp falls that have occurred for both of them. The last two examples are the fall of March 2020 and October 2018, in both of which the stock market began to fall slightly earlier than the main fall of Bitcoin.

Bitcoin is one of the most volatile assets in the Risk Asset category, and given its overall correlation with the S&P 500, its long-term growth will require a positive outlook for stock markets, which could lead investors to buy this digital currency or related financial products. Drag with it like ETFs or bitcoin ETPs.

Bitcoin and the dollar index

Bitcoin price correlation and dollar index
Bitcoin price correlation and dollar index

The US dollar index measures the value of the dollar against a basket of the euro, the Japanese yen, the Swiss franc, the Canadian dollar, the Swedish krona and the pound sterling. This index is a very good tool, the upwardness of which indicates the strength of the dollar against other currencies.

A comparison of the dollar index against the price of bitcoin from 2013 onwards shows that, in general, its decline has helped to increase the price of bitcoin, and on the other hand, the strength of the dollar has reduced the price of bitcoin. Therefore, pursuing the Federal Reserve’s monetary policy can help predict the trend of the dollar index in the short and long term, and consequently the price of bitcoin.

Recognize the onset of growth of altcoins with dollar index

Correlation of the dollar index with the dominance of bitcoin
Correlation of the dollar index with the dominance of bitcoin

One interesting comparison chart is obtained by juxtaposing the dollar index and the bitcoin market share of the digital currency market. The strong correlation between the two charts at some point in time indicates that altcoins, as a more risky asset than bitcoins, attract more investor attention when the dollar index is in a downtrend, and the rising dollar index attracts more attention. Returns to Bitcoin to avoid the risk of penalties falling. For this reason, the dollar index can be a good tool for knowing the conversion of bitcoins to coin coins or vice versa.

Conclusion

The correlation of financial markets with the price of bitcoin, first of all, shows that attributing sharp fluctuations to some news related to the Blockchain and digital currencies, such as the decline in bitcoin prices following the bitcoin hash war in November 2018, can change the trend. Other financial markets occur simultaneously and the underlying cause is often not identified.

Also, some correlations in such markets can mislead traders and lead them to seek the wrong results. Examples of these incorrect correlations can be found in Tylervigen website He observed that two completely unrelated things had a similar trend over time.

4 points to consider before analyzing the price of bitcoins and altcoins
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However, according to what has been said, knowing some correlations, such as the sharp rise of the dollar index in 2014 or the collapse of the US stock market in March 2020, will help investors find the future trend of the market. It should not be forgotten that bitcoin is still a volatile and risky asset and despite its low market value compared to other financial markets, institutional investors and whales continue to play a significant role in accelerating trends; So that the reflection of ten percent declines in the stock market can show its intensity in the digital currency market and the price of bitcoin many times over.

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